Archive for April, 2012

More Facebook ($FB) Thoughts

By: ispeculatornew | Date posted: 04.20.2012 (5:00 am)
It’s crazy when you think about all of the speculation regarding Facebook’s stock which is likely still a few weeks away (reports are that the the IPO will happen May 17). Can you only imagine what it will be like when it does start trading. The company continues to be in the news and while I continue to believe that it is trading at a very attractive valuation (of course, that could change by the time the IPO is done).

Facebook Acquires Instagram For $1B

This acquisition made a lot of heads spin. There are many reasons of course. Many saw Instagram as a very simple company started less than 2 years ago which had been looking for a valuation for half of that amount days before selling to Facebook. All of that is true. Did Facebook end up overpaying for Instagram? I personally do not think so. There are very few social services that have true appeal, strong growth and potential to become competitors to Facebook. Twitter, Linked and Google+ are probably the strongest contenders with others such as Instagram and Pinterest also in contention. Tons of potential buyers would love to acquire these firms and that makes acquiring them very expensive.
It’s difficult to know if this is an offensive or defensive move by Facebook. Both are certainly possible and I personally think it might be a bit of both. Let me say this. If Facebook wanted to spend $1B to acquire a growing competition in the photo sharing space, I can very much respect that decision. Especially given the possibility of seeing Instagram evolve into a different kind of social network. Since photos are core to Facebook, acquiring Instagram could potentially make sense.

The Larger Issue (Mark Zuckerberg)

I’ve heard a lot of people complain about the acquisition, especially about the timing of it, weeks before the IPO. I think these people are missing the point here. Mark Zuckbergerg owns about 30% of the shares but more importantly, he controls over 50% of the voting shares in the company. Even after the IPO, HE will be the guy in charge, not shareholders. Anyone who is seriously considering buying shares of Facebook anytime soon should be 100% certain that they are comfortable with the idea. I know that I am. But this does change things quite a bit. Facebook will continue to be focused on its long term mission, on its hacker mentality, etc. If you remember Google’s “Do No Evil” proverb, you can understand that it quickly faded as Google became much more like any other public company, focused both on long term but also quarterly earnings and targets.
That certainly raises a lot of questions for anyone involved. Many of the future earning possibilities that I see for Facebook are things that the company does not seem to spend any time considering right now. Will that change? It really is not clear. And that IS scary.
There is no doubt, there remains a lot of questions regarding Facebook but I am still very much excited about buying some of its stock once it turns public! Am I the only on here who feels that way?

Top International Dividend Stocks – April 2012

By: ispeculatornew | Date posted: 04.19.2012 (5:00 am)

A few months ago, I had put together a list of the top international stocks that did prove to be very popular. I believe very strongly in adding international stocks to any dividend portfolio. That does not however require opening accounts in foreign countries and trying to trade in all kinds of exotic currencies. In fact, most of the largest companies around the world, no matter where they are based, do hhave their stocks trading on US markets. Some are only available through pink sheets which is a whole other story. In most cases though, companies such as Credit Suisse (CS), France Telecom (FTE), GlaxoSmithKline (GSK) and Vodafone (VOD) which we reviewed recently are very easy to trade in the US.

Another option of course is to add US based stocks that have a large portion of their activity outside of the country, such as Aflac (AFL) which I picked as part of the stock picking competition and also recently added to the Ultimate Sustainable Dividend Portfolio.

One important aspect about adding international dividend payers is that in some countries, companies end up waiting to see their yearly results to pay out dividends. This practice has benefits and downsides:

Benefits:

-strong dividends in general as companies do not feel the pressure that dividend aristocrats feel for example
-management incentives to maximize profits (and thus dividends)
-healthier for the company as it pays what it can afford to pay

Downsides:

-Less reliable (these companies can reduce their payouts at any moment)

So today, I wanted to present, among the group of foreign based stocks that I follow, those that pay out the top dividend yield. Let’s start off that way:

[table “390” not found /]

Clearly, as I say every month, having the top dividend yield is not enough. In fact, it’s rarely a good sign:) So let’s dig a bit deeper. I took all of those names and looked for companies that have increased dividends and sales by 5% or more annually over 5 years with a dividend yield of 5% or more. Then, I removed companies that have a payout ratio over 75%. Guess how many names I have left? Just 5:)

[table “389” not found /]

What are your thougghts on these? I will certainly take a deeper look but I thought it was quite interesting:)

Anticipating Inflation

By: ispeculatornew | Date posted: 04.18.2012 (5:00 am)

A couple of weeks ago I wrote what turned out to be a very popular and very controversial post about how the 4% retirement rule applies to dividend investing. I received a lot of interesting feedback that I will certainly be looking into in the next few weeks. Today, I wanted to discuss one part that I was highly criticized on; my inflation assumptions. As a reminder, I wrote the post assuming a 2% long term inflation rate.

Is 2% Too Low?

Many said that it was way too optimistic to assume a 2% inflation. That in fact, inflation was likely to jump to 3-4% or perhaps much higher. Quite a few said that within a few years, inflation would likely reach 10% or more. That certainly gives me a lot to answer. I will answer a few different points here.

Yes, My 2% Was Just An Assumption

When I wrote the post, I wrote down a 2% inflation rate because that seemed about right. Probably a bit of mistake as these days we are seeing historically low inflation rates and it might be optimistic to think it will remain so low. That being said, I don’t feel like I am way off either. I understand that many expect inflation to jump. That inflation could reach 5%, 10% or even higher. But how could anyone really make long term assumptions using such numbers? I mean honestly, is there any chance that long term inflation will be 7 or 8%? Yes, absolutely. But is that a likely scenario? Not in a million years.

I still believe that financial planning is all about trying to get an accurate picture of where we are, where we are trying to get and then determine the most likely “optimal” route to get there. How could somone realistically expect that high of an inflation rate? So no, I would not take seriously anyone that would be using a 10% long term inflation rate.

In the same way, do I really expect markets to increase by 6 or 7% every year, inflation to be 2 or 3%? No. Markets might crash next year and inflation could skyrocket. But trying to predict the timing of such events for long term financial planning is not really possible. We are stuck with trying to find assumptions that can hold over the long term.

A More Logical Approach To Inflation Predicting

I can think of 3 ways to predict long term inflation rates.

#1-The Fed

The Fed is likely the most sophisticated economic forecasting firm in the world and while it is wrong like everyone else, It still remains very reliable. The Fed expect these inflation rates in the next 3 years:

2012: 2.30%
2013: 2.20%
2014: 2.50%

There are 2 obvious weaknesses here:

#1-Many people do not trust the Fed’s forecasts
#2-It’s not very long term as you can see

#2-Michigan Survey

The University of Michigan is very well known for the surveys that it does among the US population regarding how they perceive the economy, what they expect, etc. They do also have such a survey for 5-10 year inflation. That rate currently stands at 3%…. A bit higher than what I was using no doubt.

#3The Better Approach To Inflation Forecasting

You might be familiar with TIPS bonds, Treasury Inflation Protected Securities. These are bonds that will return the “given” inflation rate + a premium for inflation. For example, if you bought a 1 year US government TIPS, it would return the same as a “regular” 1 year bond but would also account for inflation. As investopedia explains it:

“A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. TIPS can be purchased directly from the government through the TreasuryDirect system in $100 increments with a minimum investment of $100 and are available with 5-, 10-, and 20-year maturities.”

So what would the difference be between a 5 year US government standard bond and a 5 year TIPS? It would be the expected inflation. Here are the current numbers for different maturities:

-5 year expected inflation rate: 1.94%
-10 year expected inflation rate: 2.24%
-20 year expected inflation rate: 2.35%
-30 year expected inflation rate: 2.37%

For example, this means that an investor that will receive the inflation over 30 years is willing to pay 2.37% more than an investor that isn’t on US government securities.

Clearly, my 2% is a bit low, but not by much….

Is This Method Perfect?

Obviously, it is not. But I would argue that using such a method is the best available method. Why? Because if someone had enough certainty that inflation was going to jump. That person would start buying 30 year TIPS. He could then sell 30 year “standard” bonds. That would gradually increase the yield difference, especially if enough investors had that same belief. I’m sure that many expect 30 year inflation rates to be over 2.50% and maybe over 3%… But there are as many investors who think inflation will actually be lower, maybe under 2%…

So yes, I should have used a higher inflation assumption…

I should have used 2.37% instead of 2%. I will adjust accordingly in my follow-up post:)

When A Short Position Goes Terribly Wrong ($AOL)

By: ispeculatornew | Date posted: 04.17.2012 (5:00 am)

Investing is risky. Long and short investing carries even more risk. Last week, when I was forced to close out my short position on AOL ($AOL), that was one more example of how things can turn out for the worst. The majority of investors carry only long positions which is certainly less risky? Rarely does a stock move so quickly in the down direction. It can happen over time, especially when it is a crappy stock/company. I could easily give you examples such as Netflix (NFLX) or Research in Motion (RIMM). Even BP, after its now famous oil leak, did not suffer a huge jump overnight.

Big Gains Are Much More Frequent

Companies can end up making a big discovery, selling off some of their assets, etc. The more common reason for a stock jumping though is M&A activity when rumors or real news comes out about the selling of part or all of a company. AOL which sold a large portion of its assets to Microsoft. There have been others such as MonsterWorldwide (MWW) that have seen their senior execs declare that the company was open to such strategic options. Sometimes, it’s all rumors.

Stop Losses Only Protect To An Extent

As most of you know, I usually close out trades once they close a day up or down 20% or more. Last week, when AOL surprised with the sale of its patents, the stock opened nearly up 50%… That left my trade down nearly 40% from one minute to another. It’s unfortunately a risk of long & short trades.

Protecting Against Such Trades

Obviously, I do my best to protect my portfolio against such events. First off, I try to stay away from stocks that I consider likely to have some M&A action because I do not think that I would be well positioned to have an opinion on such stocks. That is one big reason why I have stayed far away from Yahoo in recent years. Unfortunately, it is impossible to see all such moves coming. Some, such as AOL are big surprises. I simply hope that at the end of each year, I get as many of these moves to go in my direction as I will have against me. That has usually been the case so I can’t complain.

Only Invest What You Can Avoid To Lose

I got a question last week regarding how to make sure that short positions will not be “bought back” by the broker if they move against you. It should never be that close. If you want to have short positions in your account, you should have more than enough long positions to ensure that you will not have to worry about such things. Personally, while I do long & short trades, I also have a longer term, long only, portfolio that consists of ETF’s and dividend stocks.

Keep Perspective

While it is very frustrating to lose 50% on a trade, especially since there would have been no way for me to see this coming (realistically), it would be easy to get upset, to start overly questionning myself. The reality is that this happens, sometimes they work out for the best other times they don’t. I do however have a solid year so far, even including that pick, with a 40% annualized return or so. In fact, just a couple of days later, I got the other side when a stock I was long of, Travelzoo (TZOO) jumped up huge after announcing it might put itself up for sale.

Stick To The Rules

It could have been tempting to wait a bit longer before closing out the trade. I personally think the AOL move was blown out of proportion and would probably love to short the stock now (in fact, I did decide to short it yesterday). That being said, I did stick to my trading rule, got out of the position and looked over the numbers. Why? Because once I start bending the rules, it becomes very tempting to keep doing that. I believe strongly that my rules are a huge part of why my long & short tech trades work so well. Sticking to them is critical, even in tough times:)

What About You?

How do you react when a trade goes against you in a violent way?

New Trade: Long Apple ($AAPL) & Short AOL ($AOL) – Part 2

By: ispeculatornew | Date posted: 04.16.2012 (5:00 am)

Thing continue to be fairly volatile here with my tech stock picks. Overall, it’s been a great year so far with an annualized return of over 50%. That being said, there have been a few bad trades and the one that comes to mind is the failed trade on long $AAPL and short $AOL.  That trade set me back big time when AOL announced it had decided to sell off most of its patents to Microsoft (MSFT) sending its stock off to the clouds. Those who were short such as myself got killed. Thankfully, I never put enough in one single trade to become too vulnerable to such events. It was still a tough day but last week’s long trade on Travelzoo (TZOO) made up for most of it, thankfully:)

So today I am back, trying the same trade, hoping that this time the fundamentals will prevail instead of one time M&A activity:) Let’s start off by looking at the numbers:)

[table “387” not found /]

Long Apple (AAPL)

 

 

No surprise to see me get right back on the $AAPL bandwagon, I’ve been very clear how much I believe in the stock. Of course, the fact that Apple has gained so much already this year does mean that there is less potential. I do however still think the stock has a lot of upside with little to no downside. That makes it an easy stock to own. I’ve seen some interesting stats regarding Apple’s valuation including the fact that Apple is now worth more than the combined values of the stock markets of Spain, Portugal and Greece. Scary? Not at all. Apple is huge, is worth a lot, but the fundamentals are there, which is the only main and only critical point here.

Short AOL (AOL)

 

 

Well, few would have predicted that AOL would end up being one of the top performing stocks so far this year.  In fact, it is the top pick among the 32 I ranked in my 2012 Tech Stock Power Rankings. I’ve gotten a lot right in those rankings but $AOL surging was a huge miss. I don’t honestly think I could have gotten that one right though. Going forward, I do expect that AOL will have a lot of trouble keeping up a strong performance as its existing assets have not been performing as much as you’d expect, quite simply.

Disclosure: No positions on Apple (AAPL) or AOL (AOL), this trade will be opened on Monday morning

Look Back At My (Amazing!!!) Tech Stock Power Rankings:)

By: ispeculatornew | Date posted: 04.13.2012 (5:00 am)

Back in January, I completed an interesting but very difficult exercise. I basically ranked all of the stocks that I follow (except for a few exceptions such as most Chinese stocks) from 1 to 32 in my first Tech Stock Power Rankings. As I explained recently in the Tech Stock Newsletter, it was interesting because I could choose according to their valuation and upside potential without worrying about which stocks to pair together, shorting specific stocks, etc. I did expect to do well and I guess my main hopes with this were that:

-My top 5 picks would outperform my bottom 5
-My top 10 picks would outperform my bottom 10
-My top picks would outperform the general market

While I did knock it out of the park with my top pick (Apple..duh), I don’t think simply looking at the #1 rank or the #32 rank and judging based off of that would work that well. The difficult part of course would be how to invest using these rankings. I would personally be tempted by going long outright on the top names (might do that the next time I update the rankings, likely in January 2013) but you could also probably say that going long the top 5 names and shorting the bottom 5 could end up being a good idea too. Time will tell of course. Just to remind your memory, here are the top 32 stocks in order of how I ranked them January 18th as well as their return since then:

Jan 17 Rank
Stock/Company
Stock/Company Return Since Jan 17
1 Apple (AAPL) 48.91%
2 Baidu (BIDU) 19.29%
3 Google (GOOG) 3.47%
4 TripAdvisor (TRIP) 24.24%
5 Zynga (ZNGA)
30.92%
6 Amazon (AMZN) 5.22%
7 Priceline (PCLN) 52.16%
8 OpenTable Inc (OPEN) -11.96%
9 Travelzoo (TZOO) -6.83%
10 Dice Holdings (DHX) 2.65%
11 Yahoo (YHOO) -2.32%
12 Netflix (NFLX) 13.77%
13 LinkedIn Corp (LNKD) 56.45%
14 Groupon Inc (GRPN) -28.84%
15 WebMD Health (WBMD) -8.04%
16 Microsoft Corp (MSFT) 11.27%
17 Quin Street Inc (QNST) 17.52%
18 ValueClick Inc (VCLK) 20.69%
19 Demand Media (DMD) 3.91%
20 eBay Inc (EBAY) 19.55%
21 Rackspace Hosting Inc
(RAX)
30.78%
22 IAC InteractiveCorp
(IACI)
17.66%
23 Expedia Inc (EXPE) 8.34%
24 Adobe Systems Inc
(ADBE)
14.86%
25 AOL Inc (AOL) 69.83%
26 Zillow Inc (Z) 48.71%
27 Monster Worldwide
(MWW)
12.99%
28 Research In Motion Ltd
(RIMM)
-28.45%
29 Pandora Media Inc (P) -30.97%
30 XO Group Inc (XOXO) 16.67%
31 Rosetta Stone Inc (RST) 31.72%
32 Blue Nile Inc (NILE) -9.91%

 

My Top Pick (Apple (AAPL)  +49,91%
Top 5 picks average: +25.37%
Top 10 picks average: +16,81%
Top 16 picks average: +13,14%
Bottom 16 picks average: +15,25%
Bottom 10 picks average: +13,39%
Bottom 5 picks average: -4,19%

Keep in mind that this was a ranking for the 2012 year so clearly, there is still time left. That being said…

Crushing It So Far

I think that no matter how you would have looked at or invested using these rankings, you would have beaten the market. In fact, my top 5 picks have outperformed the Nasdaq by over 10%.

I Might Be Bragging A Bit

Believe me, I’ll be the first to take the blame when I get things wrong. But on these picks, so far, I have been doing extremely well. What are your thoughts going forward? I’m hoping that they can continue to do as well for the rest of the year, which should build more anticipation for the 2013 edition:)

Ultimate Sustainable Dividend Portfolio – April 2012 Update

By: ispeculatornew | Date posted: 04.12.2012 (5:00 am)

Last year I did some in-depth research to find long term sustainable dividend stocks and have been doing updates on this Ultimate Sustainable dividend portfolio since then in the attempt to show how well such a portfolio can perform over the long term but also show how I would manage such a portfolio. I have said it before, I do not believe in stocks that you can hold “forever”. Thus, even in a long term portfolio such as this one, I will end up making some trades from time to time. I did do one last month so nothing new is coming in April. I do discuss the search for new high quality sustainable dividend stocks that can be added in our free mailing list, if ever you would like to receive those types of updates, please join, it’s free:




Keep in mind that this portfolio was built by selecting 20 stocks out of thousands. The goal is not to pick the 20 best dividend stocks but rather to pick a diversified, high quality portfolio that will keep dividends increasing over time.

Here are the holdings as of last night to start off (please note that currently, dividends are not reinvested automatically through a DRIP strategy):

[table “385” not found /]

Dividends Received

Not much change here, March is done, April will be a slower month as was the case in January!:

 

Ultimate Sustainable Dividend Portfolio News

[table “386” not found /]

Returns

A few bad performances ended up meaning that the USDP is slightly under-performing the S&P500.. hopefully not for long

 

Trades

After adding Aflac (AFL) in last month’s update, I do expect to keep more or less the same stocks for a while now. We’ll see how things go:)

Closing Trade ($TZOO, $NILE)

By: ispeculatornew | Date posted: 04.12.2012 (4:00 am)
Today, I am able to close a new trade, the one opened just 3 days ago when I went long Travekzoo (TZOO) and short Blue Nile (NILE). Why so quickly? Because Travelzoo is apparently putting itself for sale, which resulted in the stock rising nearly 30% today. Lucky? Maybe.. Who knows. But after being crushed on my short $AOL position, I’ll take this one. The average trade this year has returned 5.20% which is very solid (55% annualized)… hopefully it keeps up!

Stay Connected With IntelligentSpeculator

By: ispeculatornew | Date posted: 04.11.2012 (5:00 am)

Over time, this blog has been a great place for me to voice my thoughts on investing, on tech stock trading and dividend investing and so many other things. We have also gone from receiving a few readers per day to what is now over a thousand every day and for that I’m very thankful. Being a fan of technology stocks and of stocks like Facebook (FB) and LinkedIn (LNKD), it’s only natural that I finally get my act together:)

We have been active on Twitter for some time, but today I wanted to give a recap of how you can interact with me:) So here you go:

Our Blog (obviously!):

You can also receive our posts every day by:


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or

By Receive Our
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You can also receive exclusive FREE content by email every 1-2 weeks about either:


Dividends or Tech Stock Free Mailing Lists


Social Media

I would LOVE if you could interact with me on:

Twitter

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like us
Google+


connect:)
LinkedIn


connect with me!

In particular, the Facebook page was just started so

I would appreciate if you can “like” us:)

So that’s it for now:) Thanks again for your support:)

Would You Move To A City That Makes More Sense “Financially”?

By: ispeculatornew | Date posted: 04.10.2012 (5:00 am)

Clearly, not all cities are made equal. Some cities cost a lot to live in such as New York, London or Moscow while others seem to be much more attainable. But is that all there is to choosing where we live? I read an interesting post that looked not only at the cost of living in a given city but the benefits of living there expressed in many different ways. Would you mind paying 50% more for an apartment if you moved to another city? What if I told you that wages were 60% higher? Or what if it was 40% higher but you could enjoy an incredible quality of life, parks, sports, etc?

The Best Cities In The World

Here are a few rankings that exist: Here are the top 10 most livable cities in the world, ranked using stabilitty, healthcare, culture and environment, education and infrastructure:

1. Melbourne, Australia
2. Vienna, Austria
3. Vancouver, Canada
4. Toronto, Canada
5. Calgary, Canada
6. Sydney, Australia
7. Helsinki, Finland
8. Perth, Australia
9. Adelaide, Australia
10. Auckland, New Zealand

Then you can also look at the 10 most competitive cities in the world according to the Economist Intelligence Unit based on their ability to attract capital, business, talent and tourists:

1. New York, USA
2. London, England
3. Singapore, Singapore
4. Paris, France
4. Hong Kong, China
6. Tokyo, Japan
7. Zurich, Switzerland
8. Washington DC, USA
9. Chicago, USA
10. Boston, USA

It does not even look like one of these cities is close to being on both lists. Is it not possible for a city to be both competitive and enjoyable to live in? My main question would be:

Would you or have you moved to another city/country for financial reasons?

I certainly feel like I would do it, I could see myself moving abroad with my family if the situation came to that Living further away from friends and family would certainly be the difficult part but I do think that sometimes it makes a lot of sense.

What About Retiring Elsewhere?

I know a few who have moved abroad to live a better life during their retirement. Brits that moved to Australia, Canadians that move to the Southern US to enjoy better weather and a less expensive life (real estate is clearly cheap in places like Phoenix or Florida…. Many of you have emailed me worried about how much they would have once they retire. For many of those people, moving abroad could be one alternative. What are your thoughts?